S. 311 — ACE Act

This section revises the definition of qualified higher education expenses for 529 plans (i.e., tax-advantaged savings plans for postsecondary tuition, fees, books, supplies, and related expenses) to include additional elementary and secondary expenses—without the prior $10,000 annual limit per student—for public, private, religious schools, or homeschools, specifically: (1) tuition; (2) curriculum and materials; (3) books or instructional materials; (4) online educational materials; (5) tuition for qualified tutoring or classes outside the home; (6) fees for standardized achievement tests, advanced placement exams, or college admission exams; (7) dual enrollment fees at institutions of higher education; and (8) educational therapies for students with disabilities. The changes apply to distributions made after the date of enactment.

This section increases the annual limit on tax-free distributions from 529 plans (i.e., tax-advantaged savings plans for qualified education expenses) for elementary and secondary school tuition to $20,000 per beneficiary (from $10,000), for taxable years beginning after December 31, 2026.

This section increases the annual gift tax exclusion amount under IRC §2503(b)—currently $18,000 per donee in 2024, adjusted annually for inflation—by up to an additional $20,000 per beneficiary per calendar year for contributions to 529 qualified tuition programs (i.e., tax-advantaged savings plans for qualified higher education expenses). The provision applies to gifts made after December 31, 2026.

This section restricts the tax exemption for interest on state and local bonds under IRC §103(a) to bonds issued by a "minimum school choice state" or its political subdivision, effective for bonds issued after enactment. (As background, IRC §103(a) excludes such interest from gross income to reduce state and local governments' borrowing costs for public projects.) A minimum school choice state is one that has enacted school choice programs—tax credit scholarship programs, voucher programs, education savings accounts, or refundable tax credits for private education expenses—under which at least 40% of specified school-age children (i.e., residents under age 18) are eligible and average per-pupil spending on eligible children is at least 60% (from 100%) of spending on non-eligible children. Minimum school choice states meeting higher thresholds—at least 65% eligibility and 75% spending ratio—receive full exemption; others receive only a 50% exclusion of interest.